Item 12a July 23, 2014

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Item 12a

July 23, 2014

Energy Commission

2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-Mail: [email protected] Website: http://www.CityofBerkeley.info/Manager

ACTION CALENDAR DATE TBD

DRAFT

To: Honorable Mayor and Members of the City Council From: Al Murray, Chair

Submitted by: Neal DeSnoo, Secretary

Subject: Recommendation to Replace the Residential and Commercial Energy Conservation Ordinances (RECO and CECO) with an updated Building Energy Saving Ordinance

RECOMMENDATION

Adopt first reading of an Ordinance repealing the Residential and Commercial Energy Conservation Ordinances (RECO and CECO) and adopting an updated Berkeley Building Energy Saving Ordinance.

SUMMARY

In September 2013, City Council directed staff to initiate a public process to update the current RECO and CECO. Council direction specified that the update should

incorporate energy information disclosure, which is a market transformation tool that makes information about buildings’ energy use more transparent to building owners and prospective renters or buyers. Council direction also emphasized the need for user-friendly ordinance compliance and minimized costs to residents...

In response to City Council direction and with input from community stakeholders, staff proposes that the updated Berkeley Energy Saving Ordinance not contain requirements for specific minimum measures in favor of requiring energy reporting and disclosure based on site-specific efficiency opportunities, as well as health, safety and comfort needs. An energy opportunities report would provide building owners with actionable recommendations packaged with rebates and incentives, with consideration given to existing and planned capital improvements. According to outcomes studies, this type of information has proven effective at achieving high-value energy reductions. The

proposal is summarized below:

1. Remove existing requirements to install minimum RECO and CECO measures at time of sale or remodel.

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Date tbd July 23, 2014

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3. Require medium and small buildings to comply at time of sale prior to their scheduled phase-in date.

Requirements by building type:

 Large Buildings 25,000 sq ft or more

– Report US Environmental Protection Agency (EPA) ENERGY STAR® Portfolio Manager benchmark score annually

– Conduct and disclose an energy assessment once every 5 years

 Medium Buildings 5,000 to 24,999 sq ft

– Conduct and disclose energy assessment with benchmark at time of sale or at least once every 8 years (whichever comes first)

 Small & Single Family Buildings up to 5,000 sq ft or 4 res units or less

– Conduct and disclose energy assessment at time of sale or at least once every 10 years (whichever comes first)

This proposal for an updated energy saving ordinance was informed by community input gathered at three public workshops hosted by the Berkeley Energy Commission. Staff also held roundtable meetings, at which the proposed changes were reviewed and discussed in depth, with several additional stakeholders, including the Berkeley

Association of Realtors, the Berkeley Property Owners Association, commercial property owners/managers and others. The proposal is also informed by extensive research into existing energy information disclosure policies within the U.S.

FISCAL IMPACTS OF RECOMMENDATION

A program budget and fee ordinance will be provided for cost recovery of program administration.

The Commission also recommends that the City incent owners to make energy improvements by offering a rebate of one-third of the property transfer tax for single-family (one- to four-unit) residential properties, capped at the gross cost of the upgrade. The average annual cost for the first five years of the program is estimated at $760,000. It assumes that 20% of unique home sales participate (189 annually) and average sales costs of $800,000. The average rebate value is estimated at $4,000. The Commission has not identified any potential revenue sources for this incentive. The cost could be reduced by applying a maximum rebate value.

CURRENT SITUATION AND ITS EFFECTS

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greenhouse gas (GHG) emissions to 33% below 2000 levels by 2020. This target is ambitious, and achieving it depends on increasing energy efficiency in Berkeley’s existing residential, commercial, and municipal building stock. Importantly, increased energy efficiency has non-energy benefits, including improved occupant comfort and indoor air quality, lower utility bills and the creation of green jobs.

The GHG emissions associated with residential and commercial building energy use decreased since 2000, but significant additional reductions are needed.

RECO and CECO have played important roles in increasing building energy and water efficiency and reducing Berkeley’s greenhouse gas emissions. The ordinances

prescribe a list of basic, cost-effective energy and water saving measures that must be installed at the point of sale or during significant remodels. RECO and CECO are fundamental to Berkeley’s climate action effort because they serve as a minimum standard for energy efficiency in existing buildings.

Despite the fact that RECO and CECO have served as critical components of Berkeley’s energy efficiency policy to date, current ordinances must be updated or replaced in order to more effectively enable increased energy and water efficiency and reduced GHG emissions in existing buildings. The current ordinances include measures that are out of date with building science and lag behind the current Title 24 California Energy Code. Additionally, energy efficiency opportunities are not “one-size-fits all” and the current required measures may not be the best choice for all situations. Some of the current required measures, such as attic insulation, may also preclude future

opportunities for deeper energy savings, such as thorough air sealing. Furthermore, the impact of the current RECO and CECO is limited by the number of compliance trigger events. While the current trigger events -- time of sale and significant remodel – are good times to install efficiency measures, the number of buildings affected on an annual basis is relatively small. The number of single family properties triggered by sale and remodel ranges from 500 to 1,000 annually, or 2%-4%; multifamily and commercial transactions impact very few buildings, averaging less than 40 per year, or 1.5%. With the current compliance trigger, many buildings will never be affected by RECO or CECO and many others will not be affected for decades.

In addition to the need to modify the RECO and CECO, the information systems

currently deployed to manage ordinance compliance are neither user-friendly nor easily accessible. They do not provide a web interface that enables building owners, as well as prospective buyers and tenants, access to compliance status and energy information of a building. Without that critical information, informed decisions about the value of energy efficiency and comparisons between properties are difficult.

The current ordinances also do not provide a way to measure ordinance outcomes and the associated contribution to energy, utility bill, and GHG emissions reductions.

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Ultimately, there is significant potential for additional cost-effective energy

improvements in existing residential and commercial buildings but the current RECO and CECO are not adequate on-ramps to achieving that potential. The current

ordinances do not enable property owners to leverage their investments in energy efficiency in the marketplace, and the existing minimum requirements only skim the surface of energy-saving opportunities.

BACKGROUND

In September of 2013, City Council directed staff to develop a new energy saving ordinance that would achieve the following main outcomes:

 Energy information disclosure to enable property owners to leverage their investment in energy upgrades in the marketplace and to enable prospective tenants and buyers to assess the energy performance and associated costs of a given building

 Consistency with the Title 24 California Energy Code

 User-friendly compliance and compliance tracking for residents and businesses through improved information technology systems and on-call assistance

 Minimized compliance costs through synergy with ratepayer-funded utility incentive programs such as Energy Upgrade California

 Increased recognition for residential and commercial energy efficiency leaders within the community through awards and other recognition efforts

 Improved ability for City staff to track compliance, direct energy services to underperforming buildings or areas, and to measure and report the energy, cost and GHG reductions associated with the ordinance

Energy information disclosure policies are a market transformation strategy that helps make the energy performance of a given building transparent and an explicit component of the building’s value. Property owners then have the potential to market and leverage the energy efficiency of a building. Likewise, energy information disclosure helps

prospective tenants and buyers to compare energy performance across buildings. In addition, energy information disclosure policies enable local government and energy service providers to direct resources and assistance to underperforming buildings. There are a variety of existing information reporting tools and templates; the exact energy information that residents and businesses would disclose in order to comply with an updated Berkeley ordinance will have to be identified in the process of developing the ordinance.

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Assembly Bill 1103 (2007) was passed with the intent of providing access to commercial building energy information. AB 1103 rulemaking is still in process.

On the residential side, six states and four local governments have adopted residential energy disclosure laws, including Austin, Chicago, Montgomery County, MD and Santa Fe.

In Berkeley, approximately 90 non-residential buildings are already tracking their energy performance using EPA’s Energy Star Portfolio Manager tool. These include municipal buildings, Berkeley Unified School District buildings, office buildings, hotels and others. Several of these buildings received Berkeley Energy Smart Awards in 2012. Awards and recognition programs create positive reinforcement that supports information disclosure policies, raises the public profile of building performance and enhances interest in energy efficiency.

As well as creating an updated, more effective energy ordinance, the City must also ensure that compliance is easy and user-friendly for residents and businesses. Residents and businesses should be able to check and report compliance online. An online system will also better enable the City to quantify and report the ordinance’s contribution to the community’s energy and GHG reduction goals.

The ordinance has been developed through a public process that includes public workshops and direct meetings with key community stakeholders. The Energy Commission hosted a series of public workshops for this purpose.

ENVIRONMENTAL SUSTAINABILITY

This ordinance is a key implementation action of the Climate Action Plan and is projected to result in substantial reductions in energy use and greenhouse gas

emissions, as well as improve indoor air quality contributing to the health and well-being of occupants.

CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA)

The policy should be categorically exempt from CEQA in so far as it is not a project and does not compel any projects. To the extent that the policy could influence projects, such projects would be exempt under Section 15301, Existing Facilities and Section 15308, Actions by Regulatory Agencies for Protection of the Environment.

RATIONALE FOR RECOMMENDATION

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commercial markets, a growing body of research shows that energy efficient properties have higher occupancy levels, lease-up rates, and sale prices than less efficient

properties (Pivo & Fischer, 2010, Fuerst & McAllister 2009/11, Wiley et al., 2010). Furthermore, research by the US EPA found significant energy savings achieved in buildings benchmarking their energy use, finding an average savings of 2.4% per year over a seven-year period.

ALTERNATIVE ACTIONS CONSIDERED

An options analysis was undertaken that evaluated a total of three policy approaches. In addition to the recommended policy, staff analyzed costs and benefits, including

greenhouse gas emissions from two alternatives – the existing RECO and CECO with updated measures and requiring minimum improvements based on a buildings energy performance.

1. “Business-as-usual” approach. This approach would entail slight modifications to the existing RECO and CECO prescriptive measures at time of sale (renovation would not be a trigger since the energy code has been significantly improved) to bring them up to date with the current Title 24 California Energy Code and eliminate the lost opportunity of requiring insulation without air sealing. This approach would be cumbersome because of additions to the California State Building and Energy Codes which require building permits for attic insulation, combustion safety testing for air sealing and independent inspection for duct repair or replacement. Furthermore, it would not achieve a scale of energy savings that is consistent with the community’s goals because of the limited number of buildings – only an average of 600 per year - triggered at time of sale. Further, basic modifications to the existing prescriptive measures do not address other deficiencies of the current ordinance, including the lack of an energy

information disclosure element and out-of-date information systems to enable user-friendly compliance and tracking.

2. Another option considered was to go beyond disclosing energy information by requiring that businesses and residents achieve measurable improvements in the energy performance of their buildings. This type of requirement would result in more energy savings, but with significant compliance cost – estimated at $12,000 on the high end for energy improvements for poor performing, high opportunity buildings. Further, assessment tools that are able to identify high opportunity buildings on a broad scale have not yet been identified or validated.

CITY MANAGER

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Note: If the City Manager does not (a) concur, (b) takes any other position, or (c) refer to the budget process, a council action report must be prepared. Indicate under the CITY MANAGER heading, “See companion report.”

CONTACT PERSON

Billi Romain, Sustainability Coordinator, Planning and Development, 981.7432

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Item 12b

July 23, 2014 Draft Ordinance for Discussion Purposes. Please do not cite. July 1, 2014

REPEALING CHAPTERS 19.16 AND CHAPTER 19.72 OF THE BERKELEY MUNICIPAL CODE AND ESTABLISHING A COMBINED BUILDING ENERGY

SAVINGS ORDINANCE REQUIRING ENERGY INFORMATION AND DISCLOSURE TO REDUCE ENERGY AND WATER USE IN BERKELEY BUILDINGS

Section 1. That Chapters 19.16 AND 19.72 in the Berkeley Municipal Code are repealed.

Section 2. That BMC Chapter 19.81 is added to read as follows:

Sections: 19.81.010 Purpose.

The purpose of this chapter is to reduce energy and water consumption in existing buildings. These efficiency improvements will lower energy and water costs and

greenhouse gas emissions citywide and increase comfort, safety and health for building occupants. The provisions of the ordinance will inform decision makers about energy performance and improvement opportunities.

19.81.020 Applicability.

The requirements of this ordinance shall apply to all buildings that are located in whole or in part within the City, but does not apply to agencies not subject to City authority.

19.81.030 Definitions.

A. “Administrator” means the City Manager or her/his designee.

B. “Asset Rating” means a type of energy benchmark that determines the relative level of efficiency of a building determined by energy use simulations based on building characteristics, as opposed to actual usage.

C. “Building Owner” shall mean the owner of record of a building. In the case of a building held in cooperative or condominium form of ownership, the term “Building Owner” shall refer to the board of managers, board of directors, homeowners

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D. “Conditioned Floor Space” means the gross floor area of a building that is served by space heating or cooling equipment, or any adjacent space that is not physically separated from such space.

E. “Energy Benchmark” means a measurement of how efficiently a building uses energy and/or water relative to modeled simulations of the building, actual energy use of the building over time or compared to similar buildings that meets standards and formats established by the Administrator.

F. “Energy Report” means a report submitted by a Registered Service Provider that identifies opportunities for water and energy efficiency in a building, and provides an Energy Benchmark in accordance with the standards and formats established by the Administrator.

G. “ENERGY STAR® Report” means an ENERGY STAR Portfolio Manager® Benchmark report generated by the on-line tool developed by the U.S.

Environmental Protection Agency that determines Energy Use Intensity and an Energy Star Performance Score for a building based on utility usage data. H. “Extensive Remodel” means any project that replaces all or most building space

heating, water heating, cooling, ventilation and lighting equipment and replaces all or most of exterior-facing wall and ceilings in accordance to standards established by the Administrator.

I. “Green Building Rating” means an approved rating by a green building verification system designed for existing buildings, such as GreenPoint Rated, US Green

Building Council Leadership in Energy and Environmental Design (USGBC LEED) or new building certification such as Zero Net Energy Building or Living Building

Challenge Certification, demonstrating approved levels of energy efficiency, as determined by the Administrator

J. “Large Building” means any building with 25,000 square feet or more of Conditioned Floor Space.

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L. “Registered Service Provider” means an entity that has been registered by the Administrator to provide an Energy Report and/or Energy Benchmark as required by this ordinance.

M. "Sale" means the conveyance of title to real property by one or more persons as a result of a sale or exchange, resulting in the execution of a real property sales contract as defined in Section 2985 of the California Civil Code as well as any

change of ownership described in subdivision (c) of Section 61 and subdivision (c) of Section 64 of the California Revenue and Taxation Code. This does not include transfer of title pursuant to inheritance, involuntary transfer of title resulting from default on an obligation secured by real property, change of title pursuant to

marriage or divorce, condemnation, or any other involuntary change of title affected by operation of law.

N. “Single Family Building” means a building that that contains less than five attached residential dwelling unit(s).

O. “Small Building” means any building with less than 5,000 square feet of conditioned floorspace or any Single Family Building.

19.81.040 Large Buildings

A. Annual Energy Benchmark

Owners of Large Buildings shall submit to the Administrator an ENERGY STAR® Report on an annual basis in accordance with the phase-in schedule below and no later than July 1 each year thereafter.

B. Energy Report

Owners of Large Buildings shall have a Registered Service Provider prepare and submit to the Administrator an Energy Report as specified in the phase-in

schedule below and by July 1 every five years thereafter. C. Disclosure

The most recent Energy Benchmarking and a summary version of the most recent Energy Report shall be made publicly available by the Administrator and shall be provided by the owner to existing lessees and to prospective lessees and buyers prior to execution of a lease or contract for sale.

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Owners of Large Buildings shall be in compliance with the requirements of this section by the dates specified below.

1. July 1, 2016 for buildings with 50,000 or more square feet of conditioned floorspace

2. July 1, 2017 for buildings with 25,000 or more square feet of conditioned floorspace

19.81.050 Medium and Small Buildings

A. Energy Report

Owners of Medium Buildings shall have a Registered Service Provider prepare and submit to the Administrator an Energy Report that includes an Energy Benchmark at time of sale or by the dates provided in the phase-in schedule below, whichever comes first. Reports for Medium Buildings shall be required every eight years and reports for Small Buildings shall be required every ten years.

B. Disclosure

The most recent Energy Report Summary including Energy Benchmark shall be made publicly available by the Administrator and shall be provided by the owner to existing lessees and to prospective lessees and buyers prior to execution of a lease or contract for sale.

C. Schedule

Owners of Medium Buildings and Small and Single Family Buildings shall be in compliance with the requirements of this section prior to the execution of contract for Sale or by the dates specified below, whichever comes first.

1. By July 1, 2018 for buildings with 15,000 or more square feet of conditioned floorspace, and on an 8 year reporting cycle thereafter

2. By July 1, 2019 for buildings with 5,000 or more square feet of conditioned floorspace, and on an 8 year reporting cycle thereafter

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19.81.060 Early Compliance

Any Energy Report completed after December 31, 2014 which otherwise meets the requirements of this Chapter or is deemed by the Administrator as equivalent shall be considered to be an Energy Report for the first compliance period.

19.81.070 Incentives

The Administrator may establish rules and regulations to incent property owners to pursue early compliance and/or achieve a high performance exemption.

19.81.80 Exceptions and Deferrals

A. High Performance Exemption. An exemption from the Energy Report requirement for the current reporting period for buildings that demonstrate energy efficiency may be granted for

1. Any building that receives an Asset Rating, Energy Benchmark or Green Building Rating that demonstrates high energy performance of a building, as determined by the Administrator.

2. Any building that completes a multi-measure energy improvement project with a verified minimum improvement, as determined by Administrator.

3. Any whole building that has been served by an income-qualified Weatherization Assistance program for low-income households.

4. Any new building or Extensive Remodel with a construction completion date within ten years of the reporting deadline.

B. Financial Hardship Exemption. The requirement for an ENERGY STAR® Report may be granted a one-year exemption and the requirement for an Energy Report may be exempted for one cycle in cases of financial hardship where one of the following is provided and approved by the Administrator:

1. Proof of participation in energy efficiency income qualified programs.

2. Proof that property qualifies for sale at public auction by the Treasurer and Tax collector due to arrears for property taxes that resulted in the property’s

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3. Proof that a court appointed receiver is in control of the asset due to financial distress.

4. Proof that a building is owned by a financial institution through default of the borrower.

5. Proof that the building was acquired by a deed in lieu of foreclosure. 6. Proof that the senior mortgage is subject to a notice of default.

7. Proof that the responsible party is otherwise not able to meet the obligations of this Chapter.

Exceptions granted under this Section are limited to deadlines imposed pursuant to Section 19.81.040 and 19.81.050 only and shall not apply to any other corrections required by the City.

C. Data Unavailable. An exemption from Energy Star Portfolio Manager Benchmarking requirement may be granted if

1. The Building Owner is unable to obtain tenant authorization in tenant-occupied spaces, reporting on building energy use will be waived providing demonstration to the Administrator of a good faith effort to obtain such consent.

2. The building occupant demonstrates to the Administrator that such disclosure may result in the release of proprietary information which can be characterized as a trade secret.

D. Planned Demolition. Exemption from Chapter for Planned Demolition - The

requirements of this Chapter may be deferred for 12 months if the owner or buyer plans to demolish the property or for 24 months if the owner has obtained a Building Permit or Permit under the Zoning Ordinance that include demolition of the subject building.

E. Exemption for Sale of a Condominium. The requirements to submit an Energy Report with an Energy Benchmark to the Administrator shall not apply to any sale of a residential or commercial condominium that is a unit within a building and not a detached structure.

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units, excluding any owner-occupied units, have leases that are more than ten years old may be deferred until the next reporting period.

G. Deferral at Time of Sale. The requirements for compliance prior to sale may be deferred if the buyer consents to comply with the requirements within 12 months of the sale date with an application for deferral to the Administrator prior to execution of contract of sale.

19.81.090 Responsibilities

It shall be the responsibility of sellers, buyers, owners, real estate agents and brokers, property managers, title companies, non-residential tenants and energy service

providers to comply with the requirements of this Chapter.

19.81.100 Administration and enforcement.

The Administrator may adopt reasonable rules and guidelines implementing the

provisions and intent of this Chapter before the operative date of this chapter and may amend these rules and guidelines from time to time. The Administrator shall periodically review the inspection process and track enforcement of the Chapter.

19.81.110 Fees

The City Council may set fees, by resolution, for the administration of this chapter.

19.81.120 Enforcement

The Administrator shall issue a written Notice of Violation to any building owner

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19.81.130 Penalties

Any person violating or causing the violation of this chapter shall be guilty of an infraction as provided for in Berkeley Municipal Code, Section 1.20.020, in addition to any other remedies provided under applicable law.

Administrative fines collected under this section shall be used to fund implementation and enforcement of the Berkeley Building Energy Saving Ordinance.

19.81. 140 Appeals

The Administrator shall establish a procedure for aggrieved persons to file appeals to the Administrators decisions.

19.81.150 Severability

If any word, phrase, sentence, part, section, subsection, or other portion of this title, which constitutes the City of Berkeley Building Energy Saving Ordinance, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the

remaining provisions of this chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The City Council hereby declares that it would have passed this title, and each section,

subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional.

19.81.160 Chapter Review